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Rating Action:

Moody's changes Piaggio's rating outlook to positive; B1 ratings affirmed

23 Mar 2018

Milan, March 23, 2018 -- Moody's Investors Service, ("Moody's") has today changed the outlook on Piaggio & C. S.p.A.'s (Piaggio) B1 ratings to positive from stable. All ratings, including the B1 corporate family rating (CFR), the B1-PD probability of default rating (PDR) and the B1 senior unsecured rating assigned to Piaggio's €250 million worth of senior notes due in 2021 were affirmed.

"The positive outlook reflects our expectation that Piaggio 's credit metrics will further improve during the next 12 to 18 months, confirming the progress that the company already achieved during 2017", says Paolo Leschiutta a Moody's Vice President - Senior Credit Officer and lead analyst for Piaggio. "Our expectation reflects the macroeconomic recovery across Europe, the strong growth experienced in the Indian two-wheeler market and the company's efforts to improve its performance in both India and Vietnam. Success in sustaining a leverage below 4.5x and a retained cash flow to net debt ratio above the mid-teens in percentage terms could result in a rating upgrade over the next 12 to 18 months", added Mr Leschiutta.

RATINGS RATIONALE

Piaggio's operating profit growth and gross debt reduction were above Moody's expectations in 2017. During the year the company's reported EBITDA grew by 12.6% to €192.3 million and its gross financial debt reduced by 15.8% to €574.8 million. These results were achieved thanks to a strong recovery in the European scooter market, boosted by changes in environmental regulations, and a strong growth in the company's 2 wheelers segment in India which more than compensated for the ongoing difficulties the company is experiencing in the commercial vehicle segment in India and in the 2 wheelers segment in Vietnam.

Debt reduction was partially driven by one-off movements, as 2016 debt levels were inflated by prefunding of upcoming debt maturities. During the year the company also generated approximately €44 million of free cash flow generation, including dividend payment, which was also above the rating agency's expectation and further supported debt reduction during the year.

Following Piaggio's 2017 results, its (gross) debt to EBITDA ratio reduced from 6.0x to 4.2x and its retained cash flow to net debt improved from 10.7% to 19.2%, both on a Moody's-adjusted and on a preliminary basis. We expect further improvement in Piaggio's performance, albeit at a slower pace than in 2017. Before Moody's can consider a rating upgrade, however, the company will have to demonstrate its ability to further improve its profitability while maintaining its current financial profile. In this respect Moody's notes that the recovery in the Western European two-wheeler market and the company's efforts to restore volume growth in Asia should help.

Moody's also expects a stable dividend policy and a modest increase in capital expenditure towards the company's long term target of around €100 million. In this respect, Piaggio's liquidity profile is seen as adequate with available liquidity and cash flow from operations during the next 12 months sufficient to cover the group's cash requirements for investments and debt repayment.

Moody's cautions however that trading conditions in some emerging markets such as Vietnam remain challenging, owing to volatile demand and fierce competition, and these could impede a sustainable strengthening in the company's credit metrics.

The current B1 rating continues to be supported by (1) Piaggio's good business profile, underpinned by its leading position in a number of markets across Western Europe and Asia, a portfolio of well-known brands including the iconic Vespa brand as well as Aprilia and Moto Guzzi and increasing geographical diversification, with a growing presence in Asia and, more recently, in Latin America; and (2) improving financial leverage. Balancing these elements are (1) a high degree of business cyclicality and seasonality as illustrated by declining volumes during the 2011-14 crises; (2) strong competition in some of Piaggio's key markets; and (3) small scale relative to other more diversified consumer durables manufacturers. Together, these factors pressure operating margins which remain in the mid-single digit range.

POSITIVE OUTLOOK

The positive outlook reflects Moody's expectation that Piaggio's key credit metrics will further improve compared to their 2017 level, albeit at a slower pace than during the last 12 months. The outlook also recognises the recovery in macroeconomic conditions in a number of European countries which Moody's expects will support purchases of two-wheelers.

WHAT COULD CHANGE THE RATING UP/DOWN

Piaggio's ratings could be upgraded if (1) Piaggio demonstrates success in maintaining a Moody's adjusted EBIT margin in the mid to high-single-digit level in percentage terms (5.7% at 2017); (2) success in maintaining a financial leverage, measured as Moody's adjusted debt to EBITDA, comfortably below 4.5x for a prolonged period of time and a ratio of retained cash flow to net debt above 10% (including Moody's adjustments).

On the other side, Piaggio's rating could be lowered in case of (1) deterioration in its operating performance; (2) failure to maintain a leverage below 5.5x on a sustained basis (including Moody's adjustments).

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Consumer Durables Industry published in April 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Based in Italy, Piaggio & C. S.p.A. is a leading global manufacturer and distributor of light mobility vehicles for both personal and business purposes. With a global production and R&D presence, and robust portfolio of brands (nine names including Vespa, Piaggio, Aprilia and Moto Guzzi), the group has solid market positions in the two-wheeler (scooters and motorbikes) market and in the three- and four-wheel commercial vehicles sector. In particular, Piaggio is the largest European manufacturer of two-wheelers and the market leader in the scooter segment by sales volume, ahead of Honda Motor Co, Ltd (A2 stable). In India, Piaggio ranks second in the three-wheeler vehicle markets, behind the local manufacturer Bajaj Auto Ltd.

In 2017, the company sold 552,800 vehicles (+3.9% from 2016) and reported total consolidated revenue of €1,342 million (+2.2%) and EBITDA of €192.3 million (+14.3%). Piaggio is listed on the Italian Stock Exchange. The largest shareholder is IMMSI S.p.A. (a listed holding company controlled by Piaggio's CEO, Roberto Colaninno and his family), which owns about 50% of the capital.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Paolo Leschiutta
VP - Senior Credit Officer
Corporate Finance Group
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Yasmina Serghini
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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